Stamp Tax on Vertical Property: CAAD Ruling on Verba 28 TGIS Illegality (450/2015-T)

ARBITRAL DECISION

I. REPORT

1. A…, S.A. (hereinafter "Applicant"), with tax identification number ("TIN") …, with registered office at Av. …, no. …, …, …-… Lisbon, submitted, on 17 July 2015, pursuant to the combined provisions of articles 2nd and 10th of Decree-Law No. 10/2011, of 20 January, i.e., the Legal Regime for Tax Arbitration ("LRTA"), a request for constitution of an arbitral tribunal, in order to declare illegal the acts of assessment of Stamp Tax ("ST"), in the total amount of € 5,255.89 (see table below);

The Tax and Customs Authority ("Respondent" or "TA") being the defendant.

A) CONSTITUTION OF THE ARBITRAL TRIBUNAL

1. In accordance with the provisions of paragraph a) of paragraph 2 of article 6th and paragraph b) of paragraph 1 of article 11th of the LRTA, the Ethics Council of this Administrative Arbitration Centre ("CAAD") appointed the undersigned as sole arbitrator, who communicated acceptance of the assignment within the applicable period, and notified the parties of that appointment on 22 October 2015.

2. Thus, in accordance with what is provided for in paragraph c) of paragraph 1 of article 11th of the LRTA, and by means of communication from the President of the Ethics Council of the CAAD, the Sole Arbitral Tribunal was constituted on 6 November 2015.

B) PROCEDURAL HISTORY

1. In the request for arbitral decision, the Applicant petitioned for a declaration of illegality of the ST assessments mentioned above, relating to the year 2014, with reference to an urban property, constituted in sole ownership, located at Av…, no. …, in Lisbon, which is registered in the urban property matrix of the parish of … under registration article no.….

2. It should be noted that, within the scope of the request for arbitral decision referred to above, the Applicant has already paid the amounts corresponding to the 1st instalment of ST, in the total amount of € 5,255.89.

3. The TA submitted a response, petitioning for dismissal of the request for arbitral decision, first, by way of exception, since, in its view, arbitral tribunals do not have jurisdiction to decide on the request filed by the Applicant and, furthermore, as there is no defect constituting a violation of law, requesting that the tax acts under analysis, as they do not violate any legal or constitutional provision, be maintained.

4. By order of 18 January 2016, the Sole Arbitral Tribunal, pursuant to the provisions of paragraph c) of article 16th of the LRTA, and following the request made by the TA, decided, without opposition from the parties, that it was not necessary to hold the meeting referred to in article 18th of the LRTA, as a result of the simplicity of the questions at issue, and also because it considered that it had at its disposal all the necessary elements to make a clear and impartial decision.

5. It equally decided, in accordance with paragraph 2 of article 18th of the LRTA, that it was not necessary for oral submissions to be made, as the positions of the parties were perfectly defined in their respective pleadings, and set 26 February 2016 as the deadline for the arbitral decision.

6. The Tribunal was duly constituted and is competent to consider the questions indicated (article 2nd, paragraph 1, paragraph a) of the LRTA), the parties have legal personality and capacity and have full standing (articles 4th and 10th, paragraph 2 of the LRTA and article 1st of Ordinance No. 112-A/2011, of 22 March). No irregularities occur, therefore nothing prevents judgment on the merits.

7. Thus, this proceeding is in a position for the final decision to be rendered therein.

II. QUESTION TO BE DECIDED

1. The central question to be considered and decided regarding the merits of the case, as is evident from the procedural documents of the parties, is as follows: with reference to properties not constituted under a horizontal property regime, comprised of various storeys and divisions capable of independent use (and with residential allocation), what is the Tax Property Value ("TPV") relevant for purposes of determining the ST to be paid, in accordance with Item No. 28 of the General Table of ST ("GTST")?

2. That is, this tribunal seeks to determine whether, as the Applicant alleges, the amount to be considered is the TPV assigned, individually, to each of the parts capable of autonomous use, or, instead, the total value resulting from the sum of the TPVs of those autonomous fractions, as the Respondent suggests.

3. In parallel, and following the question raised by the TA, it is also necessary to determine whether the exception of unappealability of the impugned act applies, as the former suggests, to the assessments that the Applicant seeks to challenge?

4. In this sense, should this be the understanding of this tribunal, the same will necessarily have to abstain from considering the respective request for arbitral decision, due to its lack of jurisdiction ratione materiae, in accordance with article 2nd of the LRTA.

III. DECISION ON MATTERS OF FACT AND ITS REASONING

1. Having examined the documentary evidence produced, the tribunal finds proved, with relevance for the decision of the case, the following facts:

I. The Applicant is the owner of an urban property, constituted in sole ownership, located at Av…, no. …, which is registered in the urban property matrix of the parish of … under article no.…, with 7 storeys capable of independent use and all allocated to residential purposes and a total TPV of € 1,558,250.

II. The Applicant received, with respect to the year 2014, and as a result of what is stated in Item No. 28 of the GTST, the assessment notices from the TA, mentioned above, relating to the 1st instalment, in the amount of € 5,255.89.

III. Within the scope of the assessments received, with respect to the 1st instalment, the Applicant could immediately ascertain the total amount owed, as ST, in 2014, of € 15,582.50 (with respect to the ST owed in 2014, with reference to the 7 storeys mentioned above).

IV. The Applicant, at the date of filing the request for constitution of an arbitral tribunal, had already proceeded to pay the amounts corresponding to the 1st instalment of ST (i.e., € 5,255.89).

1. The Tribunal's conviction regarding the facts found to be proved resulted from the documents attached to the record and contained in the request and the unrebutted submissions of the parties, as specified in the points of the factual matter set out above.

2. There is no factual matter relevant to the decision of the case found to be unproved.

IV. ON THE LAW

A) LEGAL FRAMEWORK

1. Having regard to the subject matter under discussion in this proceeding, it is important, first of all, to set out the provisions that make up the relevant legal framework, as of the date of occurrence of the facts.

2. The subjection to ST of properties with residential allocation resulted from the addition of Item No. 28 to the GTST, made by article 4th of Law 55-A/2012, of 29 October, which typified the following taxable facts:

"28 – Ownership, usufruct or surface rights of urban properties whose tax property value contained in the matrix, in accordance with the Code of Municipal Property Tax (Municipal Property Tax Code), equals or exceeds € 1,000,000.00 – on the tax property value for purposes of Municipal Property Tax:

28.1 – For property with residential allocation – 1%

28.2 – For property, when the taxable subjects who are not natural persons are residents in a country, territory or region subject to a clearly more favourable tax regime, contained in the list approved by ordinance of the Minister of Finance – 7.5%."

1. The aforementioned law equally added, in the ST Code, paragraph 7 of article 23rd, concerning the assessment of ST: "in the case of tax owed for the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the Municipal Property Tax Code", and article 67th, paragraph 2 which provides that "matters not regulated in this code regarding item 28 of the General Table, the Municipal Property Tax Code shall apply subsidiarily".

2. In this context, and having regard to the indication above, let us now turn to the Municipal Property Tax Code.

3. First, note article 2nd, paragraph 4 of the Municipal Property Tax Code which tells us that "for purposes of this tax, each autonomous fraction, in a horizontal property regime, is regarded as constituting a property".

4. For its part, paragraph 3 of article 12th of the Municipal Property Tax Code establishes that "each storey or part of a property capable of independent use is considered separately in the registration deed, which also specifies the respective tax property value".

5. Additionally, and having regard to the exception invoked by the Respondent, it is equally necessary to specify the related legal framework.

6. Thus, article 2nd of the LRTA establishes the scope of the jurisdiction of arbitral tribunals, in the following terms:

"1 - The jurisdiction of arbitral tribunals comprises the consideration of the following claims:

a) the declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account;

b) the declaration of illegality of acts of determination of taxable matter when it does not give rise to assessment of any tax, of acts of determination of taxable matter and acts of determination of tax property values.

2 - Arbitral tribunals decide in accordance with constituted law, and recourse to equity is prohibited".

1. In parallel, the article that governs the item under discussion, in the ST Code, is article 23rd, paragraph 7, concerning the assessment of ST, which provides the following: "in the case of tax owed for the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the Municipal Property Tax Code".

2. Finally, attention should also be paid to article 89th, paragraph 1 of the Code of Procedure and Process in Administrative Courts ("CPPAC"), applicable by force of article 29th, paragraph 1, paragraph c) of the LRTA, which prevents the consideration of the merits of cases in the following situations:

"1 - For the purpose of what is provided in the preceding articles, the following notably prevent the continuation of the proceeding:

a) Defectiveness of the petition;

b) Lack of legal personality or capacity of the applicant;

c) Unappealability of the impugned act;

d) Lack of standing of the applicant or defendant;

e) Illegality of joinder;

f) Lack of identification of interested third parties;

g) Illegality of joinder of claims;

h) Lapse of the right of action;

i) Pendency and res judicata".

1. Thus, it is in this legal framework that it is important, first of all, to decide whether the exception raised by the Respondent should proceed, the tribunal abstaining from considering the request of the Applicant.

2. In parallel, and if this is not the case, it will also be examined whether in cases where the horizontal property of an urban property with various autonomous fractions is not constituted, the TPV, for purposes of Item No. 28 of the GTST, is calculated, individually, per fraction capable of being used autonomously, or, alternatively, determined by the sum of the TPVs of those fractions.

B) ARGUMENTS OF THE PARTIES

1. In this regard, the Applicant, in its request, alleges, in summary, the following:

2. "The subjection to ST contained in Item No. 28.1 of the GTST is determined by the combination of two criteria. Residential allocation and the TPV contained in the matrix equal to or greater than € 1,000,000.00".

3. In that sense, "in the case of an urban property with characteristics identical to those described in the present case, subjection to ST is determined not by the TPV of the property, but by the TPV assigned to each of the storeys or divisions".

4. This is because, in the Applicant's opinion, the legislator made no distinction between properties constituted in sole ownership and in horizontal ownership. Therefore, "in the case at hand only the material truth underlying the property and its respective use can be relevant".

5. From the Applicant's point of view, "the TA cannot consider as the reference value of the new tax the total value of the property, since the legislator itself established a different rule in the Municipal Property Tax Code, which is the Code applicable to matters not regulated with regard to item no. 28 of the GTST".

6. In parallel, the Applicant considers that it is "illegal and institutional to consider as the reference value the sum of the tax property values assigned to each of the storeys, insofar as it constitutes a clear violation of the principle of equality and fiscal proportionality. The tax legislator cannot treat equal situations in a differentiated manner, for if it were a property subject to the horizontal property regime, none of the fractions would be subject to the new ST".

7. In conclusion, the Applicant then petitioned that the previously mentioned assessments be annulled, "as they are manifestly illegal, all with the legal consequences".

8. Additionally, and already in the context of final submissions, the Applicant further came to dispute the exception raised by the TA, enumerating various arbitral decisions in which the requested question had been considered, despite the request relating only to one of the three tax assessment acts.

9. For its part, the Respondent, after being duly notified to that effect, presented its response in which it began by considering that "the Arbitral Tribunal is materially without jurisdiction, in view of what is provided in article 2nd of the LRTA, to consider the legality of an act of assessment, which is not in itself any tax act, there being no doubt whatsoever, even from all the documents attached to it, that the Applicant challenges, exclusively, the collection notes which constitute the 1st instalment of the tax for the year 2014, relating to the property".

10. In this sense, the Respondent cites, extensively, the decision relating to arbitral proceeding No. 726/2014-T, which, in its view, concerns a question similar to that now being considered in this tribunal.

11. In the decision mentioned above, cited by the Respondent, it would have been concluded that "as each of the instalments of the ST assessments identified in the record is not autonomously appealable, for the reasons previously set out, there is a case of lack of jurisdiction of the Arbitral Tribunal to consider and declare its illegality and consequent annulment".

12. In this way, the Respondent preliminarily concluded that, by virtue of what was previously stated, the lack of jurisdiction of the Arbitral Tribunal to consider the question at issue was manifest, and the exception raised by it should be upheld.

13. In parallel, and as a precaution (in its own words), the Respondent also put forward its understanding regarding the illegality of the assessments issued by it, beginning by stating that "the collection notes result from the direct application of the legal norm, which translates into objective elements, without any subjective or discretionary appraisal".

14. Indeed, in its view, a property in sole ownership with storeys or divisions capable of independent use is, unequivocally, different from a property in a horizontal property regime, constituted by autonomous fractions, or rather, various properties, therefore, as regards the assessment of Municipal Property Tax, and subsidiarily of ST, "the TPV which serves as the basis for its calculation, will unquestionably be the TPV which the now Applicant defines as global value".

15. As to the violation of the principle of legality, the Respondent understands that the thesis defended by the Applicant lacks legal support, "for although the assessment of ST, in the situations provided for in Item No. 28.1 of the GTST, is carried out in accordance with the rules of the Municipal Property Tax Code, the fact is that the legislator reserves the aspects that need the necessary adaptations, namely those in which, as is the case with properties in sole ownership, although with storeys or divisions capable of independent use (even though the Municipal Property Tax is assessed in relation to each part capable of independent use) for purposes of ST the property as a whole is relevant since the divisions capable of independent use are not regarded as a property, but only the autonomous fractions in a horizontal property regime as per paragraph 4 of art. 2nd of the Municipal Property Tax Code".

16. Concluding, on that point, that the legislator wished to tax, with Item No. 28.1 of the GTST, properties as a single legal-tax entity.

17. With regard to the alleged violation of the principle of tax equality, the Respondent understands that Item No. 28.1 of the GTST "does not constitute any violation of the principle of equality, there being no discrimination in the taxation of properties constituted in horizontal ownership and properties in sole ownership with storeys or divisions capable of independent use, or between properties with residential allocation and properties with other allocations".

18. Indeed, for the Respondent, horizontal ownership and vertical ownership are differentiated legal institutes and "the tax law respects them!".

19. Finally, within the scope of the principle of contributory capacity, the Respondent understands that the aforementioned taxation complies with "the criterion of adequacy, to the exact extent that it aims to tax the wealth embodied in the ownership of properties of high value, arising in a context of economic crisis that cannot be ignored".

20. The Respondent thus understands that the assessments promoted by it result from a correct interpretation and application of law to the facts, and requests, accordingly, that, if the exception raised by it is not considered well-founded, then the claim made by the Applicant be judged unfounded and it be absolved from the claim.

21. Already within the scope of its final submissions, the Respondent attached to the proceeding a Judgment of the Constitutional Court No. 590/2015, of 11 November, considering that the same supported the arguments put forward by it in the context of its response to the initial petition presented by the Applicant.

C) CONSIDERATION BY THE TRIBUNAL

1. First and foremost, this tribunal must analyse the exception raised by the Respondent in the context of this proceeding.

2. In this sense, it is important first to determine whether the instalments relating to an ST assessment, contained in the collection notes, can be considered autonomously as acts of tax assessment? Or, alternatively, are we, as the TA contends, facing an exception of unappealability of the impugned act?

3. To support its decision, this tribunal will make use of the arbitral decision mentioned by the TA, the arbitral decision No. 726/2014-T, of 10 March, which, for its relevance, is now transcribed.

4. "Another of the exceptions invoked by the TA is that of lack of jurisdiction of the arbitral tribunal to decide the dispute, on the grounds that "the Applicant does not challenge a tax act, but rather challenges the payment of an instalment of a tax act contained in a collection note", or that "the object of the proceeding is the annulment not of a tax act, but rather of a collection note for the payment of the 2nd instalment of the tax for the year, a matter which is not at all included in the set of norms that defines the jurisdiction of tax arbitral tribunals, contained in art. 2nd of the LRTA". The jurisdiction of tax arbitral tribunals functioning under the CAAD is set by articles 2nd, paragraph 1, and 10th, paragraph 1, of the LRTA.

Specifically, article 2nd, paragraph 1, paragraph a), of the LRTA, states that such jurisdiction comprises the consideration of claims relating to the declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account, while paragraph a) of paragraph 1 of its article 10th establishes the period of 90 days for presentation of the request for constitution of the tribunal, "counted from the facts provided for in paragraphs 1 and 2 of article 102nd of the Code of Tax Procedure and Process, as to acts capable of autonomous appeal and, likewise, from the notification of the decision or the end of the statutory period for decision on hierarchical appeal".

Determining the tribunal's jurisdiction to decide the claim that is the object of the present case will necessarily require ascertaining whether the request for declaration of illegality and consequent annulment of one of the instalments of an ST assessment, effected under item 28, of the GTST, is equivalent to a request for annulment of the whole or in part of that assessment or, if not equivalent, whether one of those instalments can constitute an act capable of autonomous appeal.

As to the first question, it can be affirmed that an instalment does not equal a tax assessment, since, in accordance with paragraph 7, of article 23rd, of the ST Code, in the wording given to it by article 3rd, of Law No. 55-A/2012, of 29 October, "7 - In the case of tax owed for the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the Municipal Property Tax Code".

Now, the expression "the tax is assessed annually" indicates that a single annual assessment is effected, although it may be divided, for payment purposes, into instalments, and not as many assessments as the instalments into which the debt must be satisfied – the division of an assessment into instalments will thus be nothing more than a mere tax collection technique.

On the other hand, the question of whether an instalment can be regarded as an autonomously challengeable part of the assessment refers us to that of the divisibility of the tax assessment act and the consequent possibility of its partial annulment.

In this regard, jurisprudence has understood that assessment is an act that is divisible, both by its nature, as it relates to an obligation of a pecuniary nature, and by legal definition, since article 100th of the General Tax Law (GTL) admits the "total or partial success of complaints or administrative or judicial appeals in favour of the taxable subject", in which case the tax administration is obliged "to immediately and fully restore the situation that would have existed if the illegality had not been committed, including the payment of indemnity interest, in accordance with the terms and conditions provided for by law".

However, in order for there to be partial annulment of the tax act, it is necessary that the illegality affect it only in part (cf., in this sense, the Judgment of the Plenary of the Tax Dispute Section of the Administrative Supreme Court, issued on 10 April 2013, in which the following is read in its summary: "Summary: I - The tax act, as an act divisible both by its nature and by legal definition, is capable of partial annulment. II - The criterion for determining whether the act should be wholly or in part annulled is to determine whether the illegality affects the tax act as a whole, in which case the act should be wholly annulled or only in part, in which case partial annulment is justified."

Thus, in cases where the tax act is divisible, "if partial annulment of a tax act is requested, the court may not, as a rule, annul it wholly"[1]; if its complete annulment is requested and the act is only partially annullable, the claim will be partially unfounded.

Regarding the question of indivisibility of an ST assessment referred to in item 28 of the GTST, the CAAD has already ruled, in proceeding No. 205/2013-T, as shown in the extract that follows: "11. The Respondent further challenges the value of the case considering it to be 8,940.94€ and not 28,822.80€, as indicated by the applicant.

The applicant argues that "the act challenged in this case is the assessment act with no. ... of 22/02/2013, relating to the first instalment of ST, of the year 2012, in the amount of € 8,940.94, attached by the applicant to the request for arbitral decision as Doc. 1".

However, the value of assessment no. ... of 22/02/2013, as shown in the aforementioned document is, in fact, 26,822.00 € and not € 8,940.94. It should be noted that there is no assessment of € 8,940.94. This value is only the first instalment of an assessment which was immediately effected and in the amount indicated by the Applicant.

From the fact that the assessment value can be paid in several instalments, it does not follow that there are three assessments. Rather, it is an assessment that can be paid in several instalments (emphasis ours), and the taxable subject is not prevented from challenging it due to the fact that only the payment period of one of them has elapsed.

The taxable subject challenged the assessment act with no. ... of 22/02/2013, in the amount of 26,822.00€, which had been notified to him and that is the correct value of the case.". Also proceeding No. 120/2012-T, in which the following fragments are extracted, had already ruled on the indivisibility of an assessment, a matter of subsidiary application to ST assessments under item 28, of the GTST, by referral of paragraph 2 of article 67th of the ST Code:

"In accordance with what is provided in article 113th, paragraph 2 of the Municipal Property Tax Code, assessment of this tax is effected in the months of February and March of the year following that to which the tax relates.

In accordance with paragraph 1 of article 120th of the same diploma, the tax must be paid in two instalments, in the months of April and September, provided its amount exceeds Euro 250, and payment, in the case of that amount being equal to or less than that limit, must be made in a single payment, during the month of April." (…) "As results, therefore, from the provisions of the aforementioned articles, although the autonomously reviewable act is the act of assessment (emphasis ours), the period for challenging its legality should only be counted from the end of the tax payment period set out therein.

As this must be paid, in accordance with the law, in more than one instalment, only with the end of the last of those (assuming, of course, the non-occurrence of situations of early maturity) is that the counting of the period referred to in article 102nd, paragraph 1, paragraph a) of the CPPT shall thus begin, applicable, in the context of arbitral proceedings, by force of what is provided in article 10th, paragraph 1, paragraph a) of Decree-Law no. 10/2011, of 20 January ("LRTA")".

"(…) Such conclusion indeed results, clearly, from the indivisible nature of the assessment act, and from the necessity – moreover, emphasized by the Respondent itself – that, in relation to the same assessment – which, in accordance with the law must be paid in two instalments - there should not be issued contradictory administrative or judicial decisions." (…) "Since – let us reiterate –, as none of the payment instalments of an assessment is autonomously reviewable – but only the act of assessment to which they refer".

The payment instalments of an assessment or, in the situation under analysis, of an ST assessment, in accordance with Item 28, of the GTST, are not autonomously reviewable, as they originate from a single annual obligation, in accordance with the teaching of Braz Teixeira: "it is necessary not to confuse the periodic instalments, which, although being realized by successive acts, at different moments, originate from the same obligation and constitute the various portions of the same instalment that was divided, with the instalments that must be made periodically, not due to a division of the overall instalment, but rather to the birth, also periodic, of new obligations, by the permanence of the factual assumptions of taxation."

Concluding that the instalments of a tax assessment are not autonomously appealable, as they constitute portions of an overall instalment, originating from the same obligation, it is necessary to ascertain whether one of those instalments can be considered as an "autonomously appealable act", to which article 10th, paragraph 1, paragraph a), of the LRTA refers, with referral to paragraphs 1 and 2 of article 102nd, of the CPPT.

In an annotation to article 102nd, of the CPPT, and regarding paragraph e) of its paragraph 1, in which the initial date of the period for judicial challenge is provided as the date of "notification of other acts that can be the object of autonomous appeal in accordance with this Code", writes Jorge Lopes de Sousa: "(…) this rule applies not only to the cases of autonomous appeal provided for in this Code [decisions of hierarchical appeals which involve the consideration of the legality of assessment acts (art. 76th, paragraph 2), self-assessment acts (art. 131st), withholding acts at source (art. 132nd) and acts of determination of tax property values (art. 134th), but also to other cases of challenge of direct valuation acts (article 86th, paragraph 1, of the GTL)" .

The fact that the declaration of illegality of acts determining taxable matter when it does not give rise to assessment of any tax, acts determining taxable matter and acts determining tax property values, are within the jurisdiction of arbitral tribunals, in accordance with article 2nd, paragraph 1, paragraph b), of the LRTA, and the request for constitution of the arbitral tribunal, as to them, be presented within 30 days from the date of the respective notification, in accordance with article 10th, paragraph 1, paragraph b), of the LRTA, leads to the necessary conclusion that the acts of autonomous appeal to which article 10th, paragraph 1, paragraph a), of the LRTA refers, are the acts of assessment, self-assessment and payments on account, even though, in relation to these, a gracious complaint or hierarchical appeal has been submitted, expressly or tacitly denied.

Having excluded the possibility of an instalment constituting a tax assessment act, still less could it be attributed the nature of self-assessment or payment on account. As none of the instalments of the ST assessments identified in the record are autonomously appealable, for the reasons previously set out, there is a case of lack of jurisdiction of the arbitral tribunal to consider and declare its illegality and consequent annulment".

1. Indeed, notwithstanding the fact that jurisprudence has on various occasions expressed itself to the effect that tax assessment acts are divisible, as was referred to earlier, note that such (divisibility) will only be considered, for purposes of any eventual challenge of tax assessment acts, in cases where partial annullability is possible.

2. Now, despite the framework set out above, this tribunal considers that the situation at issue has, naturally, various specificities that should equally be considered, within the scope of this arbitral decision, for the purpose of ensuring its legitimacy.

3. First of all, note that, despite asserting emphatically that tax assessment acts are indivisible, the TA, when issuing the notes for payment of ST, gives the taxpayer the opportunity to, if he wishes, oppose, separately, payment of the same (i.e., by instalment), recognizing the divisibility and autonomous appealability of each of the tax assessment acts, in this case ST.

4. Indeed, in each of the aforementioned notes, it is possible to read "you may complain or challenge the assessment in accordance with the terms and periods established in articles 70th and 102nd of the CPPT".

5. And, in this sense, despite the position it defends, the fact is that the Respondent itself has, in the context of its conduct within the Portuguese tax legal order, behaved as if tax assessment acts were capable of being divisible, namely when they relate to ST.

6. Thus, what shall be said of the expectations legitimately formed by the taxpayer (and its confidence in the TA), when the TA expressly states that the latter is authorized to react against each of the notifications, individually?

7. This is because, and it is especially important to emphasize, the taxable subject, in this case the Applicant, naturally assumes the autonomous character of each instalment, as an individual tax assessment act.

8. In this regard, let us now turn to the words of Professor Rui Duarte Morais.

9. "Notifications must contain an indication of the means of reaction available against the notified act. And if such indication is wrong? We begin by noting that this type of situation is something common".

10. The Professor then questions whether in these cases it is justified "that the Court abstain from considering the matter and the taxpayer required to submit such a complaint?"

11. Well in his view, such conduct is not necessary.

12. Indeed, "the complaint in question is, in essence, a form of judicial appeal. That is, if the dispute involves a judicial decision and the "proceeding" has already reached the Court (even if improperly, due to an error by the Administration), no reason is seen for restarting the entire proceeding from "scratch". Rather, there should be a correction of the procedural form used"[2].

13. Finally, it should also be noted that this perspective is supported by various arbitral decisions, notably in the arbitral decision No. 618/2014-T, of 7 February, in which, upon recognizing autonomously the illegality of the 3rd instalment of ST, considering the respective challenge well-founded, it validated consequently the possibility of ST assessments being divisible and, in that manner, the instalments in which, as a rule, they are decomposed, individually challenged.

14. See also, by way of example, the arbitral decision handed down in Proceeding No. 757/2014-T, in which the taxpayer had requested the challenge of the 2nd and 3rd instalments relating to the act of ST assessment.

15. In that specific case, the respective tribunal recognized and declared in the same proceeding that, as to the act of ST assessment, it would only annul the 3rd instalment, as, for purposes of that initial petition, the claim relating to the 2nd instalment was already time-barred (confirming, once again, that autonomous appealability of each of the instalments, individually considered, is legitimate).

16. In this context, this tribunal cannot agree with the exception raised by the Respondent, and thus considers itself competent to then analyse the request of the Applicant.

17. By way of introduction, it should be noted that, in the understanding of this tribunal, and having regard to the legal framework previously presented, the essential normative proposition to be considered for the decision of the case is that which results from Item No. 28 of the GTST.

18. It should further be noted that, in the eyes of the arbitral tribunal, the question to be decided relates, exclusively, to a matter of law, namely to understand, for purposes of application of the aforementioned item, what the relevant TPV is.

19. First of all, let it be clear that, in the letter of the law, the TPV to be considered, for purposes of application of Item No. 28 of the GTST, can only be that which is determined in the context of the Municipal Property Tax Code.

20. This is, moreover, what the aforementioned item tells us, ipsis verbis, "(…) whose tax property value contained in the matrix, in accordance with the Code of Municipal Property Tax (Municipal Property Tax Code), equals or exceeds € 1,000,000.00".

21. Thus, once again, let attention be given to what follows from article 2nd, paragraph 4 of the Municipal Property Tax Code which tells us that "for purposes of this tax, each autonomous fraction, in a horizontal property regime, is regarded as constituting a property".

22. Reinforced, nevertheless, by article 12th, paragraph 3 of the same Code, which establishes that "each storey or part of a property capable of independent use is considered separately in the registration deed which also specifies the respective tax property value".

23. It is concluded, therefore, that, for purposes of calculating the Municipal Property Tax to be paid, the TPV is considered, individually, for each storey or part capable of independent use.

24. And if this is the method followed for the calculation of Municipal Property Tax, it must necessarily be the same model applied in the context of Item No. 28 of the GTST, in accordance with what was previously explained.

25. Notwithstanding, and if doubts still exist, this tribunal relies on some arbitral decisions previously handed down, which addressed the matter under analysis.

26. Thus, first, let us turn to decision No. 50/2013-T, of 29 October, also mentioned by the Applicant, which provides the following.

27. "Law No. 55-A/2012 says nothing regarding the qualification of the concepts at issue, namely, as to the concept of "property with residential allocation". However, article 67th, no. 2 of the ST Code, added by the aforementioned Law, provides that "matters not regulated in this code regarding item 28 of the General Table, the Municipal Property Tax Code shall apply subsidiarily".

The incidence norm therefore refers to urban properties, the concept of which results from what is provided for in article 2nd of the Municipal Property Tax Code, with the determination of the TPV being in accordance with what is provided for in article 38th and following of the same code.

Consulting the Municipal Property Tax Code, it is noted that its article 6th only indicates the different types of urban properties, among which it mentions residential ones (…).

From this we can conclude that, in the eyes of the legislator, what matters is not the legal-formal rigor of the actual situation of the property but rather its normal use, the purpose for which the property is intended. We also conclude that for the legislator the situation of the property in vertical or horizontal ownership did not matter, since no reference or distinction is made between the one and the other. What matters is the material truth underlying its existence as an urban property and its use.

(…)

Using the criterion which the law itself introduced in article 67th, paragraph 2 of the ST Code, "matters not regulated in this code regarding item 28 of the General Table, the Municipal Property Tax Code shall apply subsidiarily"" (emphasis ours).

1. That is, having regard to the fact that registration in the property matrix of property in vertical ownership, for purposes of the Municipal Property Tax Code, follows the same registration rules as property constituted in horizontal ownership, with the respective Municipal Property Tax, as well as the new ST, being assessed individually in relation to each of the parts, it does not appear, to this tribunal, that there is any doubt that the legal criterion for defining the incidence of the new tax must be the same.

2. In this context, if the law requires, with respect to Municipal Property Tax, the issuance of individualized assessment notes for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it will require, in the same terms, with respect to the rule of incidence of Item No. 28 of the GTST.

3. Whereby, ST, in the context of Item No. 28 of the GTST, could only apply to a particular fraction if it, possibly, had a TPV exceeding €1,000,000.00.

4. And, furthermore, it was also the understanding adopted by the TA.

5. Indeed, the latter (TA) also issued individualized assessment notes, relating to each of the fractions capable of autonomous use, demonstrating that, in its opinion, the aforementioned fractions, although not legally constituted in horizontal ownership, would, for all purposes, be independent of each other.

6. However, the TA overlooked that it could not, by virtue of the framework previously set out, proceed to the summation of the individual TPVs of the fractions previously mentioned, seeking a value that would already fall within the scope of application of Item No. 28 of the GTST.

7. This when the legislator itself established a different rule in the context of the Municipal Property Tax Code which, as previously referred to, is the Code applicable to matters not regulated in the ST Code, with regard to Item No. 28 of the GTST.

8. In summary, the criterion established by the TA, of considering the value of the sum of the individual TPVs assigned to the parts, storeys or divisions with independent use, making use of the fact that the property is not constituted in a horizontal ownership regime, does not find, in the eyes of this tribunal, legal support, and is, namely, contrary to the criterion applicable in the context of Municipal Property Tax and, by referral (as mentioned above), in the context of ST.

9. In this context, this tribunal considers that the criterion defended by the TA violates the principles of legality and tax equality, and likewise, the prevalence of material truth over legal-formal reality.

10. In parallel, note that article 12th, paragraph 3 of the Municipal Property Tax Code makes no distinction regarding the regime of properties which are in horizontal or vertical ownership.

11. As such, and since if the property were in a horizontal ownership regime, none of its residential fractions would be subject to the new tax, the TA cannot treat materially equal situations in a different manner.

12. In this regard, see what was said regarding this matter in the arbitral decision handed down in the context of Proceeding No. 132/2013-T, of 16 December, whose understanding this tribunal adopts.

"Indeed, it makes no sense to distinguish in law what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus).

Furthermore, making such a distinction, in this context, between properties constituted in horizontal ownership and in sole ownership would be an "innovation" without any associated legal support, not least because, as has been stated here, nothing indicates, either in item no. 28, or in what is provided for in the Municipal Property Tax Code, a justification for that particular distinction.

Note, by way of example, what article 12th, paragraph 3, of the Municipal Property Tax Code says: each storey or part of a property capable of independent use is considered separately in the registration deed, which also specifies the respective tax property value.

The uniform criterion that is required is, therefore, that which determines that the application of the norm in question only takes place when any of the parts, storeys or divisions with independent use of property in horizontal or sole ownership with residential allocation, possesses a TPV exceeding €1,000,000.00.

To establish as the reference value for the application of the new tax the total TPV of the property in question, as the now respondent intended, finds no basis in the applicable legislation, which is the Municipal Property Tax Code, given the referral made by the cited article 67th, paragraph 2 of the ST Code.

(…)

Furthermore, to allow such differentiated treatment could produce results incomprehensible from a legal point of view and contrary to the objectives that the legislator claimed to have for adding item no. 28. By way of example, suppose the following hypothesis, which seems plausible in light of the interpretation made by the now respondent: a citizen who is the owner of a property constituted in sole ownership intended for residence, with the total value of the autonomous units equal to or exceeding €1,000,000.00 and the TPV of each less than €1,000,000.00, is subject to an annual taxation of 1% of that value (as happened in the situation under analysis); whereas another citizen who holds a property with the exact same characteristics as the aforementioned but which has been constituted in horizontal ownership, with equally the total value of the autonomous fractions equal to or exceeding €1,000,000.00 and the TPV of each less than €1,000,000.00, will not be subject to taxation in accordance with the aforementioned item no. 28.

On the other hand, one might ask: if such fractions have the same owner, why does it not make sense to aggregate, for taxation purposes, their respective TPVs? The answer can be illustrated by means of another hypothesis: a citizen who is the owner of a property in horizontal ownership, in which each of its 20 fractions possesses a TPV less than €1,000,000.00, would be subject to taxation if – if such aggregation were admitted – the total TPV exceeded that value; whereas another citizen with identical 20 fractions distributed by 5, 10 or 20 properties would not be subject to any taxation in accordance with the aforementioned item no. 28.

If this line of reasoning makes sense – thus justifying, therefore, the non-aggregation of the TPVs of the fractions of properties in horizontal ownership – there is no plausible reason why the same should not be applied to the autonomous units of properties in sole ownership.

Observing, now, the case under analysis, it is noted that the TPVs of the storeys (autonomous units) of the property with residential allocation vary between (…), whereby any one of them is less than €1,000,000.00.

From this it is concluded, as a result of what was stated, that ST to which item no. 28 of the GTST refers cannot apply to the same, and therefore the acts of assessment challenged by the applicant are illegal" (emphasis ours).

1. It is also important to highlight (notwithstanding the previous framework being sufficient to recognize the illegality of the assessment acts practised by the TA), that it is based on the understanding put forward, both by the legislator and by the government itself, at the time of the addition of Item No. 28 to the GTST.

2. In this regard, let us focus now on the arbitral decision handed down in the context of proceeding No. 48/2013-T, of 9 October, which analyses, in an extensive manner, the objectives underlying the addition of the aforementioned item.

3. "Law no. 55-A/2012, of 29/10, has no preamble, hence from it it is not possible to extract the intention of the legislator.

This Law of the Assembly of the Republic originated in the draft law no. 96/XII (2nd), which, in its statement of grounds speaks of the introduction of tax measures inserted in a broader set of measures to combat the budgetary deficit.

In the statement of grounds of the aforementioned draft law, it is said that, "these measures are fundamental to strengthen the principle of social equity in austerity, ensuring an effective distribution of the necessary sacrifices for compliance with the adjustment program. The Government is firmly committed to ensuring that the distribution of these sacrifices will be made by all and not only by those who live on the income of their work. In accordance with that objective, this law expands the taxation of capital and property, embracing equitably a broad set of sectors of Portuguese society".

In that statement of grounds it is further said that, in addition to the increase in taxation of capital income and equity capital gains, a rate under ST is created applicable to urban properties with residential allocation whose tax property value equals or exceeds one million euros.

That is, in such a statement of grounds, nor is it clarified what is meant by urban properties with residential allocation.

In its intervention in the Assembly of the Republic, in the presentation and discussion of the aforementioned draft law, the Secretary of State for Tax Affairs stated the following:

"The Government chose as a priority principle of its tax policy social equity. This is even more important in times of rigor as a way to ensure the fair distribution of the tax burden.

In the demanding period that the country is going through, during which it is obliged to comply with the economic and financial assistance program, it is even more pressing to affirm the principle of equity. It cannot always be the same - workers and pensioners, bearing the tax burden.

For the tax system to be more just it is decisive to promote the expansion of the tax base requiring increased effort from taxpayers with higher incomes and protecting in this way Portuguese families with lower incomes.

For the tax system to promote more equality it is fundamental that the effort of budgetary consolidation be shared by all types of income covering with special emphasis capital income and properties of high value. This matter, be recalled, was extensively addressed in the judgment of the Constitutional Court.

Finally, for the tax system to be more equitable, it is crucial that all be called to contribute according to their contributory capacity, granting the tax administration enhanced powers to control and inspect situations of fraud and tax evasion.

In this sense, the Government presents, today, a set of measures that effectively strengthen a just and equitable distribution of the adjustment effort by a broad and comprehensive set of sectors of Portuguese society.

This proposal has three essential pillars: the creation of special taxation on urban properties with value exceeding 1 million euros; the increase in taxation on capital income and on equity capital gains and the strengthening of rules to combat fraud and tax evasion.

Firstly, the Government proposes the creation of a special rate on residential urban properties of the highest value. It is the first time in Portugal that a special taxation on properties of high value intended for residence has been created. This rate will be 0.5% to 0.8% in 2012, and 1%, in 2013, and will apply to houses with value equal to or exceeding 1 million euros. With the creation of this additional rate the tax effort required of these owners will be significantly increased in 2012 and 2013"".

1. Next, it is necessary to gather the conclusions that will allow, without room for doubt, to decide on the matter under discussion (i.e. whether, for purposes of application of Item No. 28 of the GTST, in cases in which a property with various autonomous fractions, capable of independent use, is not constituted in horizontal ownership, the relevant TPV is determined by the sum of the individual TPVs, or, alternatively, is individually considered).

2. In this sense, first note that the present matter is, from the start, by force of article 67th, paragraph 2 of the ST Code, subject to the norms of the Municipal Property Tax Code, "matters not regulated in this code regarding item 28 of the General Table, the Municipal Property Tax Code shall apply subsidiarily".

3. As such, and as has been mentioned so many times, in the understanding of this tribunal, the mechanism for determining the relevant TPV for purposes of the aforementioned item, is that which is set out in the Municipal Property Tax Code.

4. Now, article 12th, paragraph 3 of the Municipal Property Tax Code establishes that "each storey or part of a property capable of independent use is considered separately in the registration deed, which also specifies the respective tax property value".

5. The legislator thereby disregarding, in the terms previously mentioned, any prior constitution of horizontal or vertical ownership.

6. Indeed, for the latter (legislator), what matters is the material truth underlying its existence as an urban property and its use.

7. It should be noted that the TA itself seems to agree with the criterion set out, which is why the assessments it itself issues are very clear in their essential elements, from which it results that the value of application is that corresponding to the TPV of each of the storeys and the individualized assessments.

8. Therefore, if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it clearly established the criterion, which must be single and unequivocal, for the definition of the rule of application of the new tax.

9. Thus, there would only be grounds for application of ST (in the context of Item No. 28 of the GTST) if any of the parts, storeys or divisions with independent use presented a TPV exceeding € 1,000,000.00.

10. The TA cannot consider as the reference value for the application of the new tax the total value of the property, when the legislator itself established a different rule in the context of Municipal Property Tax (and, as previously mentioned, this is the code applicable to matters not regulated with regard to Item No. 28 of the GTST).

11. In conclusion, the current legal regime does not impose the obligation to constitute horizontal ownership, thus the conduct of the TA translates into arbitrary and illegal discrimination.

12. Indeed, the TA cannot distinguish where the legislator itself chose not to, under pain of violating the coherence of the tax system, as well as the principle of tax legality provided for in article 103rd of the Constitution of the Portuguese Republic, and also the principles of justice, equality and tax proportionality.

13. In the case at hand, the property in question was, at the relevant date of the facts, constituted in sole ownership and had 7 fractions with independent use, as results from the documents attached by the Applicant, all with residential allocation.

14. Given that none of these fractions, individually considered, has tax property value equal to or exceeding €1,000,000.00, as results from the documents attached to the record, it is concluded that the legal assumption for application did not occur.

15. Within the scope of its final submissions, the TA attached to this proceeding a Judgment of the Constitutional Court (Judgment No. 590/2015, of 11 November), in which the alleged unconstitutionality of the norm contained in Item No. 28 of the GTST, raised by a taxpayer, was rejected.

16. Now, in this sense, the TA considers that such jurisprudence has special relevance to the case at hand, relying on it to reinforce the understanding that its above-described conduct is totally legal and in accordance with the constitution.

17. Indeed, this tribunal also does not intend (nor can it) to assess the constitutionality of the aforementioned norm.

18. However, what is currently under discussion is not the eventual unconstitutionality of Item No. 28 of the GTST but, alternatively, the illegality of the discriminatory conduct of the TA which, in a totally discretionary manner, gives differentiated treatment to properties constituted in horizontal ownership and in sole ownership.

19. And, in that sense, the aforementioned Judgment, in the understanding of this tribunal, loses its relevance in the specific case (since it concerns the unconstitutionality of the norm in the abstract and not its application by the TA).

V. DECISION

1. In terms of which this Arbitral Tribunal decides:

A) To find the request for arbitral decision well-founded and, in consequence, declare illegal and annul the ST assessments mentioned above, with reference to the years 2014, from which there resulted tax owed in the amount of € 5,255.89, an amount which should now be reimbursed, relating to the taxation of urban properties with TPV equal to or exceeding €1,000,000, in accordance with what is provided for in Item No. 28 of the GTST;

B) To condemn the Respondent, in accordance with article 43rd, paragraph 1 of the GTL and 61st, paragraphs 2 and 5 of the CPPT, to pay indemnity interest, at the rate resulting from paragraph 4 of article 43rd of the GTL, calculated on the amount paid, from the day the aforementioned assessments were paid until full reimbursement of the amount referred to; and

C) To condemn the Respondent in the costs of the proceeding.

VI. VALUE OF THE PROCEEDING

1. The value of the proceeding is fixed at € 5,255.89, in accordance with article 97th-A, paragraph 1, al. a), of the CPPT, applicable by force of paragraphs a) and b) of paragraph 1 of article 29th of the LRTA and of paragraph 2 of article 3rd of the Regulation of Costs in Tax Arbitration Proceedings ("RCTAP").

VII. COSTS

1. In accordance with what is provided for in article 22nd, paragraph 4, of the LRTA, the value of the arbitration fee is fixed at € 612, in accordance with Table I of the aforementioned Regulation, to be borne by the Respondent, given the complete success of the request.

Notify.

Lisbon, CAAD, 22 February 2016

The Arbitrator

(Sérgio Santos Pereira)

[1] SOUSA, Jorge Lopes de, "Code of Procedure and Process in Tax Courts – annotated and commented" I Volume, Áreas Editora, 2006, p. 875.

[2] See Manual of Procedure and Process in Tax Courts, Edições Almedina, 1st Edition, Coimbra, September 2012, p. 24.